Fundamental economics states that scarcity leads to efficiency.
Contemporary management, on the other hand,
identifies integration as the bedrock of
efficiency. The Revolutionary Democrats seem
to have understood both well, as can be seen
from their maritime transport strategy.

The integrated transport of shipments is the pinnacle of the maritime
strategy of the EPRDFites, as stated in the
GTP. The plan envisions the reduction of
transit time and cost of logistics as well
as procedures for processing imports and
exports. A multimodal transport system (MTS),
which involves the integration of seaway and
inland transport, is believed to be the way
to get them all right.

As rough as the planning of the strategy was, so goes the
implementation. With the opening of the
scheme for private importers, the debate has
taken a new turn. At the heart of it lies
the tacit monopolisation of the system by
Ethiopian Shipping Lines (ESL) and the role
of the private sector.

On the one hand are those who support the protection of public
enterprises for reasons of economy of scale,
market integration, financial capacity,
investment in research and training - and
sometimes efficiency. On the other extreme
are those advocating liberalisation and
private sector involvement in the shipping
and inland cargo transportation sectors. The
reasons that the latter mention range from
consumer choice to price factors.

Global experience in the shipping sector shows that the price of
shipping is highly sensitive to market
liberalisation. Recent research also asserts
that competitiveness in the inland freight
transportation market correlates with import
demand elasticity. With over 90pc of the
world’s trade being shipped internationally,
where the operation of merchant ships only
contribute to around five per cent of global
trade, the price impact of a competitive
shipping market is enormous.

The significance of the global shipping industry could also be
discerned from the fact that it transported
over 7.7 billion tonnes of cargo in 2008.

The presence of over 50,000 merchant ships around the world sailing
with flags of different countries also
signifies the sheer size of the industry and
its role in global trade, according to
UNCTAD.

However, a closer look at the situation in Ethiopia shows a different
model of the shipping and freight
transportation market. The country has only
one national shipping carrier, Ethiopian
Shipping Lines (ESL), which was established
in 1964 in a joint venture (JV) with the
Ethiopian government and a US company named
Towers Investment. Sheltered under policy
and regulatory protections by the Imperial
and Socialist regimes, the national carrier
extended its domination in the maritime
market of the country.

The implicit protection of the national carrier seems to have continued
even after the Revolutionary Democrats took
power. As a result, the market share of the
national carrier in the importation of
consumer goods has witnessed a significant
increase from around 20pc 1970s to 60pc in
2010. The number of vessels owned, managed,
and operated by the carrier has increased
from two to eight.

A recent addition to the tacit protective measures is the newly
introduced strategy of a MTS. The new
system, which would enable ESL to expand its
reach to Modjo and Semera dry ports, would
even give it a disproportional advantage in
market share.

By contrast, the global shipping market is highly competitive,
according to UNCTAD’s Shipping and World
Trade Index. As of 2009, Greece benefits
from the largest fleet, with 16pc share,
while Japan and China have shares of 15.7pc
and nine per cent, respectively. In terms of
gross volume, Panama is at the top with
shipping 193 million tonnes.

While countries such as Liberia and Denmark have each witnessed 99
million tonnes and 10.6 million tonnes of
shipping, in that order, the tonnage carried
by ESL as of 2010 has remained at 2.4
million tonnes. This is low in comparison
with these countries, but its share of 40pc
of the total national import and 60pc in the
consumer goods category makes it the only
mega sized shipping company in the
country.

With the introduction of the MTS to Ethiopia, the competitiveness in
the shipping and inland transport markets
had to change. What is contentious is the
direction of the change.

The Revolutionary Democrats say that the new system will reduce transit
time and costs, but, they do not state the
negative side, i.e. opportunity costs of the
new system.

In what could be a historic move to integrate the national freight
transportation system, they planned to
increase the proportion of import cargo
deployed through the MTS from two per cent
in 2010 to 80pc in 2015. This, as per their
plan, would reduce the transit time of
imports and exports by over 30pc, from the
baseline of 30 days to 20 days in 2015.

Critics of the MTS range from freight forwarders to importers and onto
transport companies. Worst hit by the
implementation of the new system would be
freight forwarders. With ESL controlling
around 60pc of consumer goods importation
and the new system avoiding middlemen,
freight forwarders would have limited
options by which to survive in business, if
they do not close.

When the new system was partially operational, serving only public
organisations and NGOs, private forwarders
thrived on serving private importers. Yet,
as the system is now open for private
importers, these forwarders might go out of
business. Importers, on the other hand,
claim that the system is expensive, opaque,
and tacitly monopolised.

They mention the absence of a cargo tracking system as the major
problem. The resentment of transport
companies stem from the higher price fixing
ability of the national carrier.

The debate goes on, as does the uncertainty surrounding the new system
of integrated transportation. For the time
being, the debate is rather focused on the
immediate advantages and disadvantageous of
the MTS. What should matter are the
structural changes brought by the new
system.

Equally important are the broader assumptions and implications of the
system. While these points have been given
less attention, this does not mean that
there is a consensus. The overall state of
the situation stipulates justifiable answers
for the fundamental questions.

How competitive should the shipping, transit, and inland transport
sector of the country be? What should the
role of the private sector be?

As laudable as the policy objectives established by the Revolutionary
Democrats are, so should be their
implementation. With the growing role of
private investment in the country, policies
should be designed and implemented to
facilitate it. The fact that private
investors have registered to invest in 900
projects with a capital of 34 billion Br in
the first half of the 2010/11 fiscal year
substantiates this claim.

However, the recent intervention of the government in the market has
eroded business confidence. The startling
reaction of the government to inflation
through imposing a lending cap on banks and
fixing retail prices of certain commodities
has even worsened the situation. Aside from
making imports very expensive, these
measures have restrained supply.

As a result, the consumer is facing the dual problems of supply
shortages and price increments. No doubt,
the ambiguity surrounding the MTS is adding
to prevailing business uncertainty.

No matter how improbable the road ahead is, it is more competition, not
less, that would advance the envisioned
objectives of multimodal transportation.
Sheltering the national shipping carrier
from competition is not the way out. Rather,
innovative ways of involving the private
sector should be sought.

The proactive engagement of the private sector in policy planning as
well as implementation processes would also
help to clear the haze at the outset.
Establishing a competitive freight
transportation system centred on the private
sector should not be the last resort.